When should SARS condone a late appeal?

In a recent application to the Johannesburg Tax Court (018/2016), the court was asked to condone an appeal submitted late by the taxpayer. The facts are simply that the taxpayer filed an appeal more than 75 business days after the notice of disallowance of the taxpayer’s objection. The reason for late submission is that the taxpayer’s representative thought that the appeal was filed on e-filing but later discovered that it was not filed due to an internet connection problem. SARS opposed the application stating that it has no discretion to extend the period for lodging an appeal beyond a period...

Understatement penalties

In a recent case before the Johannesburg Tax Court (IT 14247), the court was faced with the question of what constitutes a prejudice to SARS or the fiscus. Understanding this is important because SARS can only raise an understatement penalty (USP) if there was a prejudice to SARS or the fiscus. SARS can also only raise an additional assessment under section 92 of the Tax Administration Act, No. 28 of 2011 if there was prejudice to SARS or the fiscus. The facts of the case are briefly that: the taxpayer had paid provisional tax in respect of certain tax years;...

The VAT compliance landscape

VAT use to be a simple tax for taxpayers to comply with. Returns would go in regularly with very little hassle and SARS’ audits or verifications seldom resulted in an assessment. Not anymore.  With VAT fraud being more prevalent now than ever before (at least that is what we are told), all taxpayers are seemingly treated on the assumption that there might be a snake in the grass. This has resulted in an increase in the number of VAT returns being verified or audited by SARS and which in turn has resulted in an increase in the number of VAT...

Why are proposed tax changes important?

In the recent seminal judgment of the Pretoria High Court[1], hereinafter referred to as “the Pienaar Brothers Case”, the court reaffirms the importance of taking notice of not only changes in tax law but also proposed changes to tax law and the need to plan accordingly. Failing to do so may have devastating consequences for taxpayers, as it did for the taxpayer in the Pienaar Brothers case who was left out of pocket by a couple of million rand. In short, the taxpayer in the Pienaar Brothers Case was held liable by SARS for STC which it had not taken...

VAT registrations: Non-resident non-executives

On 4 May 2017 SARS issued Binding General Ruling No. 41 (“BGR41”) which requires of non-executive directors to register for VAT provided they satisfy the registration threshold and other requirements. Whilst the principles involved for South African resident NED’s are straight forward and fairly simple, for non-resident NED’s this is not necessarily the case. BGR41 merely confirms that the exclusion from the requirement to register for VAT that applies to salaried persons does not apply to NED’s. This does not mean that all NED’s must now register for VAT. All other requirements must be satisfied, the most prevalent in the...

How to weather the tax storm

Based on the latest report released by STATS SA, the South African economy has moved into recession with a reported decrease of 0.7% in GDP during the first quarter of 2017. The bad economic climate impacts SARS’ revenue collection and is without a doubt a contributor to the recent increase in tax audits and additional assessments experienced by taxpayers. The bad news for taxpayers is, the worse the economy gets, the more aggressive SARS is likely to be to ensure revenue targets are achieved. While taxpayers should respect SARS’ right to collect revenue, SARS at the same time should comply...

TAX ON PROFIT ONLY?

TAX ON PROFIT ONLY?

In layman’s terms, the general rule is that taxpayers who carry on a trade only pay tax on “profit” (taxpayers registered for turnover tax being one obvious exception to this rule) and not on all amounts received by or accrued to the taxpayer (or “gross income”).  Situations however arise from time to time where a taxpayer may be faced with paying tax on gross income as opposed to “profit”. An example of this is where a taxpayer receives an amount in advance from a client.   Where a taxpayer receives an amount in advance from a client, the taxpayer will typically...

CLAIMING VAT BEFORE VAT REGISTERED

CLAIMING VAT BEFORE VAT REGISTERED

It is trite that only a registered VAT vendor is entitled to an input tax credit, provided all requirements for an input tax credit has been satisfied by that vendor. But what is the position where goods have been acquired before VAT registration and VAT was paid at the time – can the VAT on these goods be claimed after the taxpayer becomes a registered vendor? The answer to this question lies in what is generally termed a “change in use adjustment”.  The VAT Act allows a taxpayer to claim an input tax credit where VAT was paid by that...

CONVERTING FROM PUBLIC TO PRIVATE COMPANY – TAX ISSUES

CONVERTING FROM PUBLIC TO PRIVATE COMPANY – TAX ISSUES

Unlisted public companies may want to convert from public to private companies for various reasons. Often times it is the free transferability of shares that cause a concern where there is disagreement at shareholder level and the risk of having a third party introduced as shareholder becomes high.   Where such a conversion is indeed pursued, the question that always comes up from a tax perspective is what the tax consequences are for the shareholders. This question originates from the very wide definition of “disposal” in the Eighth Schedule to the Act. According to that definition, any “variation” of rights constitute...

LEASEHOLD IMPROVEMENTS – TAX DEDUCTION

LEASEHOLD IMPROVEMENTS – TAX DEDUCTION

Taxpayers who rent their business premises often erect improvements to the premises and the cost of this can be quite substantial. A tax benefit in the form a deduction for such costs assists in alleviating the burden placed on a business. In this article, we investigate some of the requirements for claiming a deduction for leasehold improvements in terms of the so called leasehold improvement allowance. Improvements used in the production of income/income is derived therefrom The improvements must be used to generate income or income must be derived therefrom. A typical example of where improvements are used in the...